The Oracle Super-Bowl
Tips & Tricks

The Oracle Super-Bowl

(Decentralized vs. Centralized)

Blockchain Oracles are third-party services that enable smart contracts to send data outside their network. Whether it’s trading crypto, algorithmic stablecoins, liquidity aggregators, or lending markets, dApps (Decentralized applications) consistently need assistance from oracles. Oracles act as a bridge that digests external information into formats that smart contracts can understand, which becomes a vital resource to the native blockchains.

Acting as the communication facilitator between smart contracts and the outside world, the examples of data gathered by oracles include the following: Price and exchange rate of real/crypto-assets, weather conditions, sporting events, geolocation and traceability information.

If the blockchains didn’t use oracles, the blockchains would be like having a cell phone without having the phone connected to a cell phone provider. You would not be able to connect on multiple fronts. Oracles allow for enclosed networks to consume and provide reliable external information, allowing for smart contracts to react to real-world events and integrate with established business processes.

Many crucial factors go into blockchain oracles, like the type of information source to utilize. One of the main factors is the degree of trust provided. A business has to choose what kind of oracle’s value chain planning solution to help organizations run efficiently, and take on any supply chain that has any variation demands from blockchain to the user. These companies struggle with a vital operational decision of picking between two types of oracles, centralized or decentralized. Let’s examine both types of oracles .

Centralized Oracles

This oracle is a one-person team. The single entity is the only source that provides the real-time data from an external source and delivers the data to a smart contract operating with a set of security features. Centralized oracles are controlled by a single entity and are the only provider of information for smart contracts that call on the data these oracles are aggregating.

This system could be compared to the current legacy banking system, where just one central bank is responsible for everything. If something suffers within its design, the entire system would fail, and the projected information would be considered malicious, corrupted, and untrustworthy. This could ruin a business's entire infrastructure resulting in just a single point of failure and easy access to be attacked.

The significant benefit of a centralized oracle is that the setup is simple and requires less maintenance. When the centralized oracle is functioning properly, it could provide the ultimate secured source of trust because it’s only one entity that provides the untampered data. Embracing the one entity approach makes decentralized oracles slow but highly secure.

Decentralized Oracles

Decentralized oracles have multiple players on the team. The decentralized oracle team of real-time data providers can provide a much faster output than centralized oracles because it doesn’t rely on a single source of truth which allows for multiple external sources to provide authentic information to smart contracts. Thus this creates a more reliable source of data against malicious actors.

The strategy that decentralized oracles use is the ShellingCoin protocol, where all these independent sources report the data without coordinating with one another. The issue with this system is that it can become very vulnerable at various points by parties, signaling, and even providing corrupted data.

In-house bounty hunters must consistently watch these systems to catch the infectious data input. The independent data operators could also be subject to consistent attacks from various sources, making them very insecure. The decentralized oracles are typically embraced more by business networks because they are allowed to run multiple systems at different times. This gives the business entity more data flow and output strength as well as a more reliable source of data. On the flip-side, they do require more extensive investment in infrastructure and maintenance.

Neither centralized or decentralized oracles are inherently faulty, instead the end user has a choice depending on their needs to choose between the two options.

It is for this reason why many of DeFi applications choose to run on centralized while others on decentralized oracles.

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